- Banking sector’s rate jacked up from 39% to 44%.
- National exchequer expected to get Rs70-75bn in taxes.
- ADR to be replaced with ratios to fixed maximum slab.
ISLAMABAD: The federal government is eyeing an additional Rs70-75 billion into the state kitty by the end of December following the cabinet’s approval of the promulgation of an income tax ordinance for bringing changes in the Advance Deposit Ratio (ADR), The News reported on Saturday.
Under the proposed agreement struck between Deputy Prime Minister Ishaq Dar-led committee and the banking sector, both sides agreed that the calculation of bank profits on account of ADR will be replaced with ratios to a fixed maximum slab.
The banking sector rate has been jacked up from 39% to 44% under the agreed formula. Now the banking sector is supposed to pay a tax amount of Rs70-75 billion into the national exchequer.
“The federal cabinet has approved the promulgation of an ordinance on income tax but the president of Pakistan has not yet signed it. We are waiting for the president to promulgate this ordinance,” a top official in the Federal Bureau of Revenue (FBR) told the publication on Friday.
The ADR in terms of the Income Tax Ordinance, 2001, through Finance Act 2022, the higher tax rate on banks on the issue of ADR of Banks was introduced for the tax year 2022 (Jan 2021 — Dec 2021) and onwards through the insertion of sub-rule (6A) in rule 6C on the rates of:
- 55% tax on the income attributable to investment in Federal Government Securities if ADR Ratio is up to 40%.
- 49% tax on the income attributable to investment in Federal Government Securities if ADR Ratio is between 40 & 50%.
- Normal rates if the ADR Ratio exceeds 50%.
Now instead of these different slabs, the ADR was settled from the corporate sector rate of 39%to 44% on the profits derived through advances into government securities by the banking sector.
Earlier, Prime Minister Shehbaz Sharif had constituted a high-powered committee under Deputy PM Dar to explore possibilities to bring profits of banks accrued from investment in government securities.
The committee comprised the deputy prime minister, minister for finance & revenue, law minister, minister of state for finance and revenue, attorney general for Pakistan, finance secretary, FBR chairman, State Bank of Pakistan (SBP) governor and Asma Hamid.
The Terms of Reference (ToRs) of the committee included reviewing the existing legal framework of fiscal measures related to the banking sector’s ADR, deliberating on alternative fiscal schemes to tax bank profits accrued from investment in government securities, and engaging with the banking sector developing a consensus on way forward, if possible.
